Business

McDonald’s Minimal Wage Rise and the Way forward for the Quick Meals Franchise

Employees work at the counter of a McDonald’s restaurant in the company’s new corporate headquarters on June 4, 2018 in Chicago, Illinois.

Scott Olson | Getty Images News | Getty Images

For Tom Locke, his turning point in employee wages came back in March during a conversation with a tired store manager, Heidi, in Coventry Township outside Akron, Ohio.

Earlier this week, the McDonald’s location, which she ran for his family-owned TomTreyCo, had record sales of $ 18,000 in a single day, but speaking to her at a booth, Locke realized that despite her decades of dedication to The staff shortage at the end of the Covid-19 pandemic really took its toll on his company.

She described working a 12-hour shift, sleeping in her car for three hours instead of driving home for half an hour, followed by another full day on her feet. “I could see the stress on Heidi’s face,” Locke recently recalled. So he decided to make a change to the 45 McDonald’s locations that are part of his franchise business in cities in Pennsylvania, West Virginia, and northeast Ohio – he raised workers’ wages.

The youngest employees would make at least $ 13 an hour, and far more than what other local competitors offer for managers who would move up to $ 20 an hour.

“We were in a pretty strong financial position,” said Locke of the April decision, following consultation with his executive team and a thorough review of the models to study the cost and margin implications. “I felt if at any point we could do this to raise the salaries of all of our employees, it would be now.” he said.

Fast food payment under pressure

Fast food wage levels have been scrutinized over the past decade with the help of work-friendly policymakers and well-organized stakeholders like Fight for 15, who advocate a minimum wage of $ 15 an hour.

McDonald’s is perhaps more at the center of this criticism and controversy than any other brand, although its franchise model means that the vast majority of restaurant locations are actually operated by independent franchisees like Locke’s TomTreyCo, rather than the franchisor – McDonald’s itself. But thanks to the deeply intertwined relationship between the franchisor and franchisee, a decision to increase wages on either side of the franchise equation can have complex implications.

In May, just months after other heated disputes with franchisees over study programs and the payment of technology fees, McDonald’s announced that workers at McDonald’s 650 company-owned locations will receive an average pay increase of 10% by the end of June – entry-level employees will ever Earn $ 11-17 an hour by location, and Shift Supervisors will make $ 15-20 an hour. The company says the average wage for employees in in-house restaurants will be $ 15 an hour through 2024.

While the wage increases will only take effect in the locations that McDonald’s owns and operates, the company encouraged franchisees who run the roughly 13,000 other restaurants to do the same for their roughly 800,000 employees, causing anger and dismay among some franchise owners. The fast food giant sells 95% of its US restaurants.

What McDonald’s boss says about wages

McDonald’s is one of the restaurant chains that emerged from the pandemic in a strong financial position, much like Chipotle, which recently increased wages, and in its case, menu prices by 4%. And it has tried to financially support independent restaurant operators.

In a recent interview at the CNBC Evolve Global Summit, McDonald’s CEO Chris Kempczinski said the company’s decision to invest around $ 1 billion in liquidity – and several in addition – into its system earlier this year after the worst pandemic ended Years of balance sheet years of growth in the US – was part of an effort to turn the franchisee mindset away from worrying, “Will I be able to pay my mortgage or loan due this month? … it’s that mindset going from a defensive to a really much more aggressive stance. “

While not wanting to comment on an increased federal minimum wage, McDonald’s CEO said, “There’s no doubt that $ 7.25 is not what you should or have to pay to be competitive in the market today. … wages are rising because the economy is strong. “

Labor experts say McDonald’s move will put pressure on its franchisees.

“This will put a lot of public pressure on franchisees to do the same,” said Laura Padin, a senior labor advocate for the National Employment Law Project. “When this campaign started in 2011 or 2012,” Padin said of “Fight for 15,” a minimum wage of $ 15 was “intended as that kind of ‘pie in heaven’ target.”

The latest announcement from McDonald’s is proof of its effectiveness, Padin said. “The fact that companies are taking this initiative themselves only shows how much the movement has changed the narrative of what an acceptable minimum wage should be,” she said.

Franchise industry is pushing back

The franchise industry has made its position clear – minimum and maximum wages should be set by individual restaurant operators. “Franchisees are best placed to make wage decisions in their local communities,” said Matt Haller, senior vice president of government relations for the International Franchise Association. He highlighted the cost differences between high-priced city zip codes and more rural locations.

The current focus on wage levels was due to a “union-driven campaign” to achieve certain organizational or political results by persuading the public that the franchise business model is in fact an enterprise model. In the public eye, he says, this is “to make a company like McDonald’s or Dunkin Donuts or Hilton Hotels one company, not a collection of many small companies doing business under a common brand.”

On July 7, 2021, in San Rafael, Calif., A sign reading “Now Hiring” is posted in the driveway of a McDonald’s restaurant.

Justin Sullivan | Getty Images

McDonald’s corporate view puts franchisees in the crosshairs of a battle that is being fought with massive competitors in a broader, low-wage landscape.

“I think what happens is you see that having a great economy is very helpful in increasing employee wages. And I think a lot of the changes that come from the wage perspective are because companies like McDonald’s have to compete for the best. ” Talent, “Kempczinski said.” If you have Walmart and Amazon, Target … all going to $ 15, that’s certainly a talent pool to compete with. “

How McDonald’s employees feel

Among workers advocating higher wages, a distinction between McDonald’s companies and franchisees can seem semantic.

“We don’t care if we work in a franchise or corporate business or not,” says Cristian Cardona, a 21-year-old who started working at a McDonald’s-operated restaurant in Orlando three years ago. “We all wear McDonald’s uniforms and we all earn a living wage.”

Cardona was first employed at $ 9.25 an hour, just a dollar more than the Florida minimum wage at the time. Then after a year he became a manager and rose to $ 11 before McDonald’s recently raised it to $ 13. “If McDonald’s companies can control how franchisees make and market their Big Macs, I know they can figure out how to pay every single worker a living wage of at least $ 15.” he said.

For Locke, the Ohio franchisee, adopting higher wages was ultimately more of a corporate than a moral choice. “I will be honest with you,” he said in a recent telephone interview. “If it wasn’t for a huge labor shortage, we might not have taken the action.”

We were just a virtual hamster on the hamster wheel: we weren’t going anywhere. The hardest part is hiring, retaining, and training great people.

Tom Locke, McDonald’s franchisee

At the beginning of the year, Locke had reduced his menu choices to improve his margins, but he was still grappling with staffing shortages. Around 250 employees would leave every month and just as many would have to be trained. In the catering industry, sales of over 100% are common.

“We were just a virtual hamster on the hamster wheel, we weren’t going anywhere,” he says. “The hardest part is hiring, retaining and training great people.”

But since his raise, which went ahead regardless of McDonald’s announcement, the following month, retention rates have skyrocketed.

To compensate for the higher costs, he has raised prices slightly, but believes that customers “expected” it, as his team has publicly communicated the higher wages for its workers. “It’s a long-term look at business as opposed to a very short-term look at business,” Locke said. “I think it’s a much better business model.”

This is an approach that shows more consistency than friction between McDonald’s companies and independent owners, and reflects the view of the McDonald’s CEO.

“We’re going to be transparent … We’re going to make absolutely long-term decisions, so let’s not intervene here and now for the short term,” Kempczinski told CNBC.

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